International growth opportunities for the soft drink industry

Growing populations and better standards of living in emerging markets will drive demand for beverages. The long-term prospects for growth in emerging economies are promising.

Sirisha Bhogaraju - Author

Nov. 25 2014, Updated 4:00 p.m. ET

Beyond borders

The soft drink industry is looking for growth beyond developed markets like the US, where the reach of carbonated soft drinks has reached a saturation point. The Coca-Cola Company (KO) derived 58% of its 2013 revenues internationally. PepsiCo, Inc. (PEP), which is a leading food and beverage company, generated 49% of its revenues outside the US.

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Growth prospects

The per capita consumption in a region measures the average number of 8-ounce servings consumed each year. For Coca-Cola, per capita consumption in 2012 was 745 in Mexico and 401 in the US, as the chart above shows. But per capita consumption was comparatively low in countries such as China and India, indicating that in many countries, soft drinks are not consumed as widely as in the domestic market.

Companies including PepsiCo and Coca-Cola are focusing on these growth regions to increase per capita consumption by investing in manufacturing and distribution networks, as well as advertising.

Positive trends

Growing populations and better standards of living in emerging markets will drive demand for beverages. Rising health awareness among consumers across the globe is moving them toward better options including ready-to-drink tea, bottled water, and low-calorie products.

The long-term prospects for growth in emerging economies are promising. In the short-term, however, there might be certain impediments such as lower-than-expected consumer spending growth in countries such as China.

Competition outside the domestic market

Coca-Cola and PepsiCo compete with local niche players and private labels in developing markets. For instance, in China, Hangzhou Wahaha Group Co., Ltd., Hebei Yangyuan Zhihui Beverage Co., Ltd., and Guangdong Jiaduobao Beverage & Food Co., Ltd. are some of the key players in the soft drink market.

Other soft drink manufacturers such as Monster Beverage Corporation (MNST) and Mondelez International, Inc. (MDLZ) are also looking for international growth opportunities.

An alternative way to invest in the soft drink industry is through the Consumer Staples Select Sector SPDR ETF (XLP).


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